Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Arconic — Proxy Contest (May 2017)
62 slides from Howmet Aerospace's proxy contest presentation, May 4, 2017
Slide 1: Arconic Annual Meeting Supplemental Materials
Arconic Annual Meeting Supplemental Materials Update as of May 4, 2017
Slide 2: Important Information
Important Information Forward-Looking Statements This presentation contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those
Slide 3: Important Information (continued)
Important Information (continued) Non-GAAP Financial Measures Some of the information included in this presentation is derived from Arconic’s consolidated financial information but is not presented in Arconic’s financial statements prepared in accordance with accounting principles generally accepted
Slide 4: Table of Contents
Table of Contents 1. 1 Executive Summary and Recent Developments 2. 2 Action-Oriented Board Focused on Value Creation and Strong Governance 3. 3 Shareholders Should Support The Board’s Slate of Aerospace Industry Experts 4. 4 Elliott’s Claims Are Misleading 5. 5 Keep Arconic Strong – Vote the White
Slide 5: Executive Summary and Recent Developments
Section 1 Executive Summary and Recent Developments
Slide 6: Executive Summary
Executive Summary Arconic’s Board is a carefully assembled group of experienced executives committed to shareholder interests Arconic is executing on an aggressive plan which is creating significant value The Board is proposing an accomplished slate of new directors for election, and if electe
Slide 7: An Unanticipated Event Led to Recent Change in Leadership at Arconic
An Unanticipated Event Led to Recent Change in Leadership at Arconic Update on recent developments On April 12, 2017, the Board learned of a letter sent by Arconic’s then CEO, Klaus Kleinfeld, to Elliott Management − Letter was sent without Board consultation or authorization − The Board determine
Slide 8: Arconic's Nominees All Bring Fresh Perspectives and Deep Experience
Arconic’s Nominees All Bring Fresh Perspectives and Deep Experience Update on Arconic’s director slate Arconic has nominated five individuals for its Board of Directors, all of whom bring fresh perspectives − Two new nominees with aerospace and defense expertise from the highest levels of industry
Slide 9: Recent Breakdown of Settlement Talks Reveals Elliott's True Intentions
Recent Breakdown of Settlement Talks Reveals Elliott’s True Intentions Facts behind recent settlement talks Twice in late April, Arconic and Elliott negotiated a settlement agreement, almost to conclusion − Arconic has tried to settle this contest so it can give its undivided focus to the business
Slide 10: Elliott Seeks Undue, Excessive and Creeping Influence
Elliott Seeks Undue, Excessive and Creeping Influence Elliott’s “creeping control” plan (see Elliott slide at left) Elliott’s Intentions Raise Significant Governance Concerns The Board has already appointed three directors nominated by Elliott in early 2016 − These directors join the rest of the B
Slide 11: Elliott's Demands Have Changed as it Seeks More Control
Elliott’s Demands Have Changed as it Seeks More Control Elliott’s increasing demands Elliott’s demands have increased over time; the Board has sought to accommodate some of these demands but has resisted giving Elliott excessive influence Arconic to file a registration statement with the SEC to help
Slide 12: Shareholders Should Vote on the White Card
Shareholders Should Vote on the White Card White Card vs. Blue Card If you want… A strategic plan focused on creating sustainable shareholder value White Card Aerospace and defense expertise on the Board from the highest levels of industry and government White Card Five new directors with the ex
Slide 13: Arconic is a Leading Provider of Advanced, Multi-Material Solutions
Arconic is a Leading Provider of Advanced, Multi-Material Solutions Arconic overview Arconic is a global leader in lightweight metals and engineering focused on attractive markets − 64% of revenue generated from growing aerospace & transportation markets(1) Arconic Operates a Best-in-class techn
Slide 14: Customers Endorse Arconic's Strategic Direction
Customers Endorse Arconic’s Strategic Direction Endorsements from valued Arconic customers “…we need our top-tier suppliers operating as true business and “Investments in technology and rate readiness are more important industry partners… [Arconic has] improved our business than ever within the supp
Slide 15: TSR Has Outperformed Industry Benchmarks in Recent Periods
TSR Has Outperformed Industry Benchmarks in Recent Periods Recent Total Shareholder Return (TSR) Arconic Total Shareholder Return Alcoa Inc. Package Value vs. Industry Benchmarks Since Separation from Alcoa Corp. Alcoa Inc. package value absolute TSR versus industry benchmarks Nov 1, 2016 Apr 28,
Slide 16: Action-Oriented Board Focused on Value Creation and Strong Governance
Section 2 Action-Oriented Board Focused on Value Creation and Strong Governance
Slide 17: Balanced, Action-Oriented Board and Focused on Good Governance
Balanced, Action-Oriented Board and Focused on Good Governance Strengths of Arconic’s Board Arconic’s Board has been purpose-built with the right mix of tenures and skills − Purposeful blend of aerospace, operating, financial, international and other complementary skill sets and perspectives − Sev
Slide 18: Arconic's Board Combines Institutional Knowledge with New Perspectives
Arconic’s Board Combines Institutional Knowledge with New Perspectives Arconic’s Proposed Board Up for election Experience (Previous Alcoa Inc.) Elliott Input (Feb-16) New Perspectives (Added Since Nov-16) Patricia F. Russo David P. Hess Interim Chair of the Board Sean O. Mahoney Amy E. Alving Inter
Slide 19: Board's Four Longer-Serving Directors Have Been Change Agents
Board’s Four Longer-Serving Directors Have Been Change Agents Track record of Board action World Class Independent Directors Action-Oriented Board 9 Patricia F. Russo – Arconic Interim Chair of the Board Supported significant business and capital structure change Former CEO, Alcatel-Lucent through
Slide 20: Board Has Already Appointed Directors Nominated by Elliott in February 2016
Board Has Already Appointed Directors Nominated by Elliott in February 2016 New Directors added at Elliott’s suggestion Directors Previously Added at Elliott’s Suggestion Fully Integrated and Contributing Incumbent Board accepted Elliott’s input and added three Elliott Sean O. Mahoney proposed dir
Slide 21: Board Additions Include Directors with Relevant Experiences and Perspectives
Board Additions Include Directors with Relevant Experiences and Perspectives New Directors added since November 2016 / Current Director Nominees Recent Board Additions and Nominees Necessary Expertise and Fresh Perspective Added David P. Hess – Arconic Interim CEO Thorough and independent search l
Slide 22: Arconic's Board Has Enabled Full Participation by All Shareholders
Arconic’s Board Has Enabled Full Participation by All Shareholders Overview of the Board’s focus on shareholder democracy Arconic’s Board has welcomed the engagement and participation by all shareholders − Directors have met with dozens of institutional investors to hear their views and get feedba
Slide 23: Arconic's Board Values Strong Corporate Governance
Arconic’s Board Values Strong Corporate Governance Focus and values of our Board Key Board and Governance Information 12 Number of Independent Directors (includes nominees; excludes the Interim CEO) 63 Average Age of Directors(1) 19 Full Board Meetings Held in 2015 and 2016 <3 Average Tenure of Inde
Slide 24: The Board Is Focused on Selecting a New CEO and the Process is Underway
The Board Is Focused on Selecting a New CEO and the Process is Underway Update on CEO search process Special committee of the Board has been formed to lead the CEO search process, comprised of: − Patricia F. Russo (Interim Chair of the Board) − Arthur D. Collins, Jr. − Sean O. Mahoney (Elliott nom
Slide 25: Elliott's Governance Claims Are False and Misleading
Elliott’s Governance Claims Are False and Misleading Elliott’s Myth vs. the Reality The Myth The Reality The postponement itself is very minor – less than 10 days Former CEO is not being nominated, creating an open space on our slate Postponement of the annual meeting was 1 effort to entrench th
Slide 26: Elliott's Assessment of the Arconic Board is Flawed
Elliott’s Assessment of the Arconic Board is Flawed Arconic’s response to Elliott’s claims about the Board Elliott Claim Facts Conclusion Executed massive changes, including transformation of business and spin of Alcoa Corp. Board has been Slow Arconic's Directors Acted to Act and Resistant to B
Slide 27: Shareholders Should Support The Board's Slate of Aerospace Industry Experts
Section 3 Shareholders Should Support The Board’s Slate of Aerospace Industry Experts
Slide 28: Shareholders Should Vote on the Board's White Proxy Card
Shareholders Should Vote on the Board’s White Proxy Card Key facts for shareholders We believe that the Board’s White Card and slate are best for shareholders who seek value creation and sound governance − Arconic has nominated five individuals for its Board of Directors who bring fresh perspectiv
Slide 29: White Proxy Card Reflects a Superior Slate Committed to All Shareholders
White Proxy Card Reflects a Superior Slate Committed to All Shareholders Nominees’ skills and experience Arconic’s Nominees Elliott’s Nominees Investors Would Adds New Forgo Critical Board Purported Skills Board Skills Already Represented Name Unique Contribution Skills If Not Elected? Name & Experi
Slide 30: Arconic Nominee: Hess Provides Critical Operating and Industry Experience
Arconic Nominee: Hess Provides Critical Operating and Industry Experience David Hess’s experience and track record David Hess, Director & Interim CEO Public Company Director Experience: Education: David Hess’s • MIT – M.S. Management, MIT Sloan Unique Qualifications: Fellow • RPI – M.S. Electrical E
Slide 31: Arconic Nominee: Alving Provides Critical Technology and Defense Experience
Arconic Nominee: Alving Provides Critical Technology and Defense Experience Amy Alving’s experience and track record Amy Alving, Independent Director Amy Alving’s Public Company Director Experience: Education: Unique Qualifications: • Princeton – Ph.D in Mechanical & Aerospace Engineering In depth
Slide 32: Arconic Nominee: Wolfenbarger Has Critical Defense Procurement Experience
Arconic Nominee: Wolfenbarger Has Critical Defense Procurement Experience Janet Wolfenbarger’s experience and track record Janet C. Wolfenbarger, Independent Director Nominee Janet Wolfenbarger’s Public Company Director Experience: Education: Unique Qualifications: • DXC Technology • Industrial Coll
Slide 33: Arconic Nominee: Albaugh Has Critical Commercial Aerospace Experience
Arconic Nominee: Albaugh Has Critical Commercial Aerospace Experience James Albaugh’s experience and track record James F. Albaugh, Independent Director Nominee James Albaugh’s Public Company Director Experience: Education: Unique Qualifications: • Columbia University – M.S. in Civil Engineering I
Slide 34: Arconic Nominee: Schmidt Brings Extensive Aerospace Experience
Arconic Nominee: Schmidt Brings Extensive Aerospace Experience Ulrich R. Schmidt’s experience and track record Ulrich R. Schmidt, Independent Director Ulrich Schmidt’s Public Company Director Experience: Education: Unique Qualifications: • Michigan State – M.B.A. in Finance • Michigan State – B.A. i
Slide 35: Arconic's Stated Strategy is the Best Path to Creating Shareholder Value
Arconic’s Stated Strategy is the Best Path to Creating Shareholder Value Key differences between Arconic’s strategy and Elliott’s proposed plan Arconic’s Strategy to Maximize Value Elliott’s Outline of an Operational Plan Focus on long-term profitable growth in attractive markets Focus on short-
Slide 36: Arconic's Strategic Plan is Carefully Designed to Maximize Shareholder Value
Arconic’s Strategic Plan is Carefully Designed to Maximize Shareholder Value Arconic’s key value drivers and financial targets Key Arconic Value Drivers 1 2 3 4 5 Focus on distinct and Innovate to generate Partner with customers Build on success of delivering Allocate capital in a growing end-market
Slide 37: Leading Industry Analysts Agree Arconic's Strategic Plan is Ambitious
Leading Industry Analysts Agree Arconic’s Strategic Plan is Ambitious Recent research analyst commentary “ARNC’s standalone margin targets are a challenging bar, so we are not convinced that there is upside to the “undisturbed” plan” ― Cowen Research, Mar 29, 2017 “Our base case estimates under new
Slide 38: Blue Card: A Vote in Support of Elliott's Disreputable Activism Tactics
Blue Card: A Vote in Support of Elliott’s Disreputable Activism Tactics Reasons not to support the Blue Card Shareholders have an absolute right to disagree on strategy, capital structure, leadership strengths and Board composition But in this contest, Elliott has engaged in aggressive ad homine
Slide 39: Blue Card: A Vote to Give Undue Influence to One Investor
Blue Card: A Vote to Give Undue Influence to One Investor Reasons not to support the Blue Card As a 13.2% owner, Elliott has the unquestioned right to provide input to the Board and to have its opinions heard and respected Elliott primarily sought a CEO change at Arconic; the old CEO is now gone
Slide 40: Elliott's Claims Are Misleading
Section 4 Elliott’s Claims Are Misleading
Slide 41: Elliott Changed Its Views, Published Flawed Analyses and Hid Key Facts
Elliott Changed Its Views, Published Flawed Analyses and Hid Key Facts Elliott’s actions Elliott Has Changed its Views Elliott’s Analysis is Flawed Elliott Has Not Been Forthcoming Elliott previously praised management and Elliott’s analysis of potential cost Elliott’s disclosure has been slow
Slide 42: Elliott's Claims Are Not Substantiated by the Facts
Elliott’s Claims Are Not Substantiated by the Facts Arconic’s response to Elliott’s claims on performance and strategy Elliott Claim Facts Conclusion Elliott uses inappropriate time periods and peer set to judge historical TSR Alcoa Inc. has generated positive shareholder returns since the finan
Slide 43: Elliott's Claims Are Not Substantiated by the Facts
Elliott’s Claims Are Not Substantiated by the Facts Arconic’s response to Elliott’s claims on performance and strategy Elliott Claim Facts Conclusion Revenue guidance comparison is apples to oranges given significant impact on revenue from divestitures in interim period coupled with FX and metal p
Slide 44: Elliott's Claims Are Not Substantiated by the Facts
Elliott’s Claims Are Not Substantiated by the Facts Arconic’s response to Elliott’s claims on culture and governance Elliott Claim Facts Conclusion Excessive Executive Most of Alcoa Inc.’s executive changes were due to internal promotions, reassignments or retirements Healthy Executive Continuity
Slide 45: Keep Arconic Strong – Vote the White Proxy Card
Section 5 Keep Arconic Strong – Vote the White Proxy Card
Slide 46: The Choice is Clear – Vote the White Card to Keep Arconic Strong
The Choice is Clear – Vote the White Card to Keep Arconic Strong The Board is a carefully assembled group of experienced executives committed to shareholder interests Arconic is executing on an aggressive plan which is creating significant value The Board has engaged extensively with Elliott,
Slide 47: The Board of Directors Recommends that You Vote on the WHITE Proxy Card
The Board of Directors Recommends that You Vote on the WHITE Proxy Card as Follows: Additional voting matters and Board recommendations Unanimous Board Recommendation Item 1 Election of Five Director Nominees to Serve for a Three Year Term Expiring in 2020 (or until the 2018 annual FOR meeting, if
Slide 48: Appendix and Reconciliations
Appendix and Reconciliations
Slide 49: Pat Russo Provides Proven Board Leadership and Oversight
Pat Russo Provides Proven Board Leadership and Oversight Pat Russo’s experience and track record Patricia Russo, Interim Chairman Pat Russo’s Current Public Company Directorships: Education: Unique Qualifications: • General Motors • Harvard Business School – Advanced • Avaya Inc. Management Program
Slide 50: Legacy Directors Have Proven Track Record of Success
Legacy Directors Have Proven Track Record of Success Key experience and track record of legacy Directors not up for re-election in 2017 Arthur Collins E. Stanley O’Neal L. Rafael Reif Independent Director Independent Director Independent Director 7 Years of Service 9 Years of Service 2 Years of Serv
Slide 51: New Board Members Bring Fresh Perspectives and Core Skills
New Board Members Bring Fresh Perspectives and Core Skills Key experience and track record of Directors added since 2016 that are not up for re-election in 2017 Sean Mahoney John Plant Julie Richardson Rajiv Gupta Independent Independent Independent Independent Director Director Director Director Ke
Slide 52: Shareholder Returns are Substantial and in Excess of Relevant Indices
Shareholder Returns are Substantial and in Excess of Relevant Indices Relative TSR over time vs. Alcoa Inc. / Package Value1 as of Oct 31, 2016 and Apr 28, 2017 Assessment Relative, Rolling TSR Performance over Time² 5 Methodology Time Period Comparable Comparable 1-Year 2-Year 3-Year 4-Year 5-Year
Slide 53: Reconciliation of Revenue Excluding Tennessee Packaging
Reconciliation of Revenue Excluding Tennessee Packaging ($ in millions) 1Q16 2Q16 3Q16 4Q16 2016 1Q17 Arconic Sales – Arconic $3,055 $3,234 $3,138 $2,967 $12,394 $3,192 Sales – Tennessee Packaging 150 189 176 37 552 54 Arconic Sales excluding Tennessee Packaging $2,905 $3,045 $2,962 $2,930 $11,842 $
Slide 54: Reconciliation of Arconic Adjusted EBITDA and Adjusted EBITDA Excluding Special Items
Reconciliation of Arconic Adjusted EBITDA and Adjusted EBITDA Excluding Special Items ($ in millions) 1Q16 2Q16 3Q16 4Q16 2016 1Q17 Net income (loss) attributable to Arconic $16 $135 $166 $(1,258) $(941) $322 Discontinued operations (1) 94 (82) (100) (33) (121) - (Loss) income from continuing operat
Slide 55: Reconciliation of Combined Segment Adjusted EBITDA to Consolidated Net Income (Loss)
Reconciliation of Combined Segment Adjusted EBITDA to Consolidated Net Income (Loss) Attributable to Arconic(1) ($ in millions) 1Q16 2Q16 3Q16 4Q16 2016 1Q17 Combined segment adjusted EBITDA $524 $568 $515 $456 $2,063 $549 Unallocated amounts: Impact of LIFO (12) (13) (1) 8 (18) (19) Metal price lag
Slide 56: Reconciliation of Arconic Adjusted EBITDA and Adjusted EBITDA Excluding Separation Costs
Reconciliation of Arconic(1) Adjusted EBITDA and Adjusted EBITDA Excluding Separation Costs Year ended ($ in millions) December 31, December 31, 2015 2016 Arconic’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for Net
Slide 57: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow(1) Year ended ($ in millions) December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2008 2009 2010 2011 2012 2013 2014 2015 2016 Cash from operations $1,234 $1,365 $2,261 $2,193 $1,497 $1,578 $1,674 $1,58
Slide 58: Reconciliation of Return on Net Assets (RONA)
Reconciliation of Return on Net Assets (RONA)(1) -------------- Alcoa Inc. – Allocated using Internal Methodology ------------ Arconic ($ in millions) 2009 2010 2011 2012 2013 2014 2015 2016 Net (loss) income attributable to Arconic ($1,151) $254 $611 $191 ($2,285) $268 ($322) ($941) Add: Loss (inco
Slide 59: Reconciliation of Return on Net Assets (continued)
Reconciliation of Return on Net Assets (continued) Return on net assets is a non-GAAP financial measure and is calculated as Net (loss) income attributable to Arconic – as adjusted divided by Net assets, which is the summation of Working capital and Properties, plants, and equipment, net. Management
Slide 60: Reconciliation of Return on Net Assets (continued)
Reconciliation of Return on Net Assets (continued) (3) Other special items include the following (continued): • for the year ended December 31, 2016, costs associated with the planned separation of Alcoa ($205), unfavorable tax costs associated with the redemption of company-owned life insurance pol
Slide 61: Reconciliation of Return on Net Assets (continued)
Reconciliation of Return on Net Assets (continued) (4) For internal analysis and historical comparison purposes, Net (loss) income attributable to Arconic – as adjusted and Net assets are allocated to the Upstream and Downstream businesses based on (i) the underlying After-tax operating income (ATOI
Slide 62: ARCONIC
ARCONIC Innovation, engineered.